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Intel Has a Chip on Its Shoulder This Earnings Season

By Dan Caplinger - Apr 12, 2013 at 4:33PM

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Will the chip maker's earnings finally help it put its PC-related slump behind it?

Earnings season has begun, and next Tuesday Intel (INTC 0.84%) will release its latest quarterly results. The key to making smart investment decisions with stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to make an uninformed, knee-jerk decision.

As the dominant manufacturer of microprocessor chips for the PC market, Intel has enjoyed huge success ever since the PC became popular decades ago, and it earned a spot in the Dow Jones Industrials (^DJI 1.98%) during the tech boom of the late 1990s. But the move toward mobile technology has threatened to leave Intel behind. Can the company make good on its promise to find similarly innovative products for the mobile market, or will it slowly fade into technology history? Let's take an early look at what's been happening with Intel over the past quarter and what we're likely to see in its quarterly report.

Stats on Intel

Analyst EPS Estimate

$0.41

Change From Year-Ago EPS

(23%)

Revenue Estimate

$12.63 billion

Change From Year-Ago Revenue

(2.2%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Intel finally get moving in mobile this quarter?
Analysts haven't been sure what to make of Intel's earnings prospects in recent months. They've raised their calls for the just-ended quarter by $0.02 per share, but they've made a $0.03 per-share cut in their consensus for the full 2013 year. The stock has also been quite erratic, rising 4% since early January following one of the weakest performances in the Dow last year.

Value investors have gravitated to Intel's stock recently just because its earnings multiples have gotten so low. That in turn reflects the pessimism that many investors feel about Intel's growth prospects. The latest figures on PC shipments showed a double-digit percentage plunge, which reawakened fears that the demise of the PC industry may come sooner than expected, accelerating the decline of Intel's core PC chip market.

But Intel has taken aim at the smartphone and mobile market, and although it's been slow out of the gate, it has some advantages over its rivals. ARM Holdings (ARMH) has gathered a client list that features most of the primary device-makers in the world, and its architecture has largely been accepted as the mobile standard. But Intel's investment in mobile manufacturing will result in smaller chips, with 22-nanometer design displacing its competitors' products. Qualcomm (QCOM 0.40%) is widely seen as the leading-edge chip designer, but its current designs are based on 28-nanometer models. Intel has a huge opportunity to use its technological prowess to take a big step forward.

One immediate hope for investors is that Intel's new Haswell mobile chip will turn out to be a hit. With the power to handle PC-sized applications on tablets, the chip promises better graphics without reduced performance or battery life. Still, with other manufacturers having gotten a big head-start in working their way into the architectures of popular mobile products, Intel faces an uphill battle.

In Intel's quarterly report, your focus should be on two things: the speed with which the PC chip market is deteriorating and the progress Intel has made in developing viable mobile chips. Unless the company deals with those issues first and foremeost, forays into other markets will play only a secondary role in determining the stock's future.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,880.24 (1.98%) $618.34
Intel Corporation Stock Quote
Intel Corporation
INTC
$42.00 (0.84%) $0.35
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$132.12 (0.40%) $0.52
ARM Holdings plc Stock Quote
ARM Holdings plc
ARMH

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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